Climate Solutions: The Story of Cap-and-Trade
Interested in understanding more about what climate solutions are out there? Need a quick primer on Cap-and-Trade? This short video from Clean Energy Works offers an overview of some of the major goals and objectives associated with the legislation. Passing energy and climate legislation is essential if there is going to be any sort of comprehensive international agreement to address global warming and climate change.
Is cap-and-trade our best option? (See arguments for cap-and-trade vs. a carbon tax.) Proponents of the approach make the case that it leverages market based mechanisms to curtail emissions, and is more effective in limiting emissions to a specific threshold than a flat carbon tax, which is even more politically unpopular. However, in a recent op-ed to the NY Times, James Hansen, the famous climatologist, argues against it, while Paul Krugman, the Nobel laureate in economics, defends cap-and-trade in a response on his blog. For an in-depth review, see this 2009 assessment of U.S. cap-and-trade proposals by researchers at MIT. For a very brief overview of some of the pros and cons, see below.
Some of the other advantages of cap-and-trade include:
- Leverages economic instruments and incentives to reduce greenhouse gas emissions.
- Would stimulate innovation toward less carbon intensive technologies.
- Would stimulate carbon trading and allow an entire industry based on the reduction of carbon emissions to take root.
- Would allow for US polluters to purchase forestry offsets and tap into other international projects to reduce emissions.
Some potential disadvantages:
- Depending on the “cap” limit on emissions that is set, the extent to which a price on carbon stimulates trading and actually reduces emissions may fluctuate (eg, if the cap is too high it might hurt businesses, and if is too low there won’t be an incentive to comply.)
- In the view of some, it may not be as effective as a flat carbon tax in terms of actually reducing emissions — the ultimate goal. A flat carbon tax applied on a economy-wide scale is much less politically viable, however.
- If large emitters are still permitted to emit (by purchasing forestry offsets, for example), and the penalties for doing so are not stringent enough, actual emission reductions will not be significant enough to avoid dangerous climatic changes.
There are a number of factors that would impact the domestic success of cap-and-trade, including the stringency of foreign programs, how well U.S. policies would mesh with these foreign programs, and the availability of alternatives to current technologies and energy sources as firms look away from conventional carbon intensive options. Regardless, if we are to avoid dangerous rises in global temperature, we must take steps toward reducing emissions, and cap-and-trade appears to be the most palatable political option that is on the table here in the United States.